Friday 8 October 2010

How To Save Public Service Pensions

This blog has said a lot about pensions in the past, so I will not repeat it now that public service pensions are out in the open. The present crisis has been coming for a long while and it did not take actuaries, accountants or mathematical economists to work it out. There is a way of salvaging the final salary schemes but it means taking them back to their beginnings and preventing the abuses.

These proposals should be put in place as soon as possible.

First, cap all public service pensions at £40,000 p.a. with retrospective effect and for the future subject to indexing as below.

All current pensions and any in the future above £20.000 for the sake of simplicity and immediacy the excess over that figure up to £100,000 should all be reduced to one of 20 bands by a reduction of three quarters of that excess. Any that are above £100,000 should count at that figure. Employee contributions will need to rise between 2 and 5%.

For the future the practice of “adding years” to actual service should end immediately. And service should mean service. All those public sector workers on the payroll who are rarely there but allowed to wander as they will, political interests or what, should have that time deducted from recognised service.

Pensions for ill health should be more closely monitored and the stringent requirements in place in the original schemes be restored. Essentially, this means people so ill and whose prognosis is so bad that they cannot work at all will be the only ones entitled to ill health provisions.

When my generation were looking for jobs and wanted a public service one with a reliable pension the age at which pension was due was 65, sometimes 60 for women. So the “shock horror” of bringing back that figure is nonsense. If the government was being serious about taking into account demographics and expectation of life it might be 70.

What the government might do for all pensioners is to introduce a specific Index Of The Aged based on the critical expenses of that group. Food, heating, housing, service charges etc. in sheltered or retirement complexes, care costs, fuel etc. should be the bedrock and all the fancy consumer clobber left out. Such an index would be the basis of future revaluations of all pensions and benefits for the old.

The first slippages in the pension schemes began with the crisis of the late 1970’s when it was necessary to rebalance public service labour when many of the men were ex-service who had lost years in the War.

By 1990, instead of these concessions being a short term fix or an occasional management tool for short term needs they were becoming embodied in the conditions of service. Even then some were saying that this was putting the pre-conditions in place for future deficits.

The Major government ducked this one as it did so many decisions so by 2000 not only had more concessions been made but some were beginning to say deficits were going to happen and could be big. All they got was promises that the Goldilocks Economy would take care of it all.

By 2005 the Labour Government were actively bribing the public service unions with more concessions and had removed the brakes and controls over high level salaries with exceptionally generous pension deals.

The train has hit the buffers and looking at the wreckage Hutton and the government want to close the station as a hopeless case. As always it is because the alternative way of reopening the tracks will be a lot harder to achieve.

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